Important Information about Consumer Proposals in Ontario, Long-Term Impacts & Other Options

What is a consumer proposal and is it the best option for me?

One option to consolidate your debts is to file a Consumer Proposal in Ontario. It is a legal process under the Bankruptcy and Insolvency Act between you and your creditors to repay part of what you owe. The amount you repay is largely based upon your income and what you own.

  Find out if filing a Consumer Proposal in Ontario, Canada is the right option to consolidate your debt and help you avoid bankruptcy.
  Every financial decision has pros and cons. Consumer Proposals aren't any different. An accredited Credit Counsellor can help you figure out if a proposal or another alternative is in your best interest.

A Consumer Proposal can only be arranged and administered by a bankruptcy trustee and costs about $1,500 to file. You pay an initial setup fee, and then, if it is accepted by your creditors, you will pay the remaining balance to proceed. In addition to this, the trustee will also retain 20% of your future payments as a fee for administering your Consumer Proposal. To be legally binding, the creditors who hold the majority of your debt must agree to the proposal. Once they do, you repay the agreed amount over a maximum of 5 years.

Advantages and Disadvantages of Filing a Consumer Proposal

There are definitely advantages and disadvantages to filing a Consumer Proposal. Here are some that are important to be aware of:

Advantages

   


Beware of the Big Debt Rip-Off
 

Consumer Proposals have become the latest method for a growing number of for-profit companies and their sales people to take advantage of vulnerable, unsuspecting consumers. Don't let this happen to you! Many debt relief companies are now claiming to offer Consumer Proposals as an easy way to get out of debt. There's a problem. Only a licensed bankruptcy trustee is allowed to file paperwork for a Consumer Proposal. The debt relief companies charge thousands in fees only to refer you to a bankruptcy trustee who then charges his or her own fees.


How to Keep from Getting Ripped Off

 

  1. Speak with a non-profit Credit Counsellor about your financial situation first. They will be able to review your situation with you and help you explore and understand all your options to deal with your debt.
  2. Never pay money to anyone for Consumer Proposal services except a licensed bankruptcy trustee.
  3. Ask how the person helping you is compensated. Many people who will seek to advise you on your debts work on commission. Make sure the "solution" they are suggesting is in your best interest - not theirs.
  4. Credit Counselling Canada is an association of non-profit credit counselling agencies who do not work on commission. If a Consumer Proposal is truly one of your best options, they’ll let you know and refer you to a reputable bankruptcy trustee for free.

 

 
       
  • It can significantly reduce the amount of debt you have to repay your creditors
  • It can be an effective method of debt consolidation in Ontario if:
    • You don't have the ability to repay all the debt you owe
    • You have consistent income
    • You've put together a monthly budget, and you can afford to make monthly payments
  • Could be a worthwhile option if:
  • Will stop active collection activity on student loan payments
  • It is one of the last methods of avoiding personal bankruptcy

Disadvantages

  • It's not private. A proposal is a permanent public record included on a searchable database
  • It's more expensive than declaring bankruptcy
  • It must be approved by the Court
  • Creditors can reject the Consumer Proposal - if they do, you may have to offer them additional funds otherwise your proposal will not proceed
  • If you miss more than 2 payments you may need to file for bankruptcy
  • Student loans can't be included if they are less than 7 years old
  • Secured debts aren't included
  • Some assets (such as your home, vehicles, or investments) may need to be sold
  • The permanent record of your insolvency can put certain professional licenses at risk and may also affect future employment opportunities

How a Consumer Proposal Can Impact Your Credit

When you make payments on a Consumer Proposal, there is a note on your credit report in the public records section that you have filed a proposal. Anyone who has your consent to see your credit report will see the public records section as well.

In addition, your creditors may report a "7" rating on the debts included in the proposal. This means that they are receiving payments through a third party. The third party is your trustee. When you make a payment to your trustee, they disburse the agreed upon amount to each of your creditors after all applicable fees have been paid.

If you are making payments to secured creditors, like for a car loan, outside of your Consumer Proposal, those creditors will report on those debts separately. Creating and sticking to a realistic budget will make this easier.

If you are able to maintain a good payment history on a secured debt while you're making your proposal payments, this can help you re-build credit afterwards.

Contact Us for More Information About Filing for a Consumer Proposal in Ontario

Between financial difficulty and bankruptcy there can be many options. While a consumer proposal may be a good option for some, it isn't the best option for everyone. To find out what options you have, call one of our professionally certified Credit Counsellors today. You can speak with a Counsellor in person or over the phone. Appointments with them are free, non-judgmental, and completely confidential.

For more information or to speak with a Counsellor, contact us in Ontario at 1-888-527-8999. You can also email or chat with us online right now.

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The Credit Counselling Society is an award winning, non-profit credit counselling service provider in Ontario with 24 offices in communities across Canada.

 

 

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